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Supreme Court First Sale Doctrine case could give boost to resale-proof digital media sales

Posted By Chris Meadows On October 30, 2012 @ 12:00 pm In copyright,ebook,Fair Use,legal | 9 Comments

[1]Ars Technica has a couple [2] of great, in-depth pieces [3] laying out in detail the facts of the matter surrounding the upcoming Supreme Court case concerning a Thai exchange student who imported and resold cheap foreign editions of English-language textbooks to finance his doctorate. Publishers contend he earned $1.2 million in revenues, and essentially set himself up as an unlicensed importer/distributor, damaging the publishers’ market for the books within the United States. The publisher plaintiff is John Wiley & Sons, which has also garnered attention for its recent lawsuits against unauthorized BitTorrent distributors of its books [4].

The article discusses the Costco vs. Omega case, which I covered here, in which Omega tried to use copyright to prevent importation, but notes that even though Omega essentially won the deadlocked Supreme Court ruling by default, the lower court to which the case was remanded eventually found that this was actually a misuse of copyright. It’s not clear just how much effect the precedent will have on the textbook cases, since a $1,299 watch is not a $200 textbook.

“Nobody has to buy a $2,000 watch, or a $1,300 watch, so it didn’t affect people in general,” says [lawyer John] Mitchell. “But anyone who wants a college degree is going to need to get their hands on textbooks. It affects millions of people, and I’m hopeful that now the Supreme Court is going to look at this as a case of importance to everyone in the U.S.”

The reason this sort of thing is even possible stems from the different cost of living standards all over the world. If American publishers want to sell their books in China, or India, or somewhere else where the average salary is so much lower than in the United States, they essentially have to price them commensurate with what people can afford over there, or they just won’t sell any. The problem is that our market is now essentially global, and people can order goods from overseas as easily as swapping out the “.com” from the end of amazon.com with some other suffix.

Bootleg DVDs for sale in Bangkok [5]

Bootleg DVDs for sale in Bangkok

This is also the reason for the region-protection schemes that were implemented for console games, DVDs and Blu-rays. Even at the dawn of the DVD era, studios knew people would readily buy from overseas to save a few dollars—and since they had the technical means to prevent people from doing so (albeit rather poorly in the case of DVDs, at least), they might as well. (This is also why you can’t buy e-books from the UK in the U.S., and vice versa, though in that case it’s more about selling rights separately to different publishers in different regions than charging more in one region than another.) But you can’t DRM a paper book.

I remember back in the 1990s when the Hong Kong movie craze was at its height here in America, and I looked for sources from which to buy cheap, unexpurgated Jackie Chan and Chow Yun Fat movies. Hong Kong stores like HiViZone (which apparently no longer sells DVDs) and DDD House [6] offered the movies cheaply (legitimately region-free, since Hong Kong studios didn’t seem to care about such things), but took several weeks to ship them. U.S. importer Poker Industries (which is apparently also defunct now) offered them at a higher though still decent price, but with quicker availability—except for titles that had been exclusively licensed by U.S. distributors, even when they were only releasing edited, dub-only versions of them, as with most Jackie Chan movies.

[7]Another case had to do with Japanese toys and their Korean knock-offs from the popular Macross anime series, which had been licensed in the U.S. as part of Robotech. After Harmony Gold got interested in Robotech again, it realized that it (thought it) held the rights to all Macross-derived properties in the U.S.—including imported toys. So it started going after toy importers with legal threats [8]. (Since then, it seems to have quietly backed down from this position—at least I haven’t heard about any other such threats in the last few years.)

My understanding to come out of such cases was that it was legal to import single copies of these items for your own use, by buying them from foreign stores—but if you turned around and sold them again in the U.S., you were violating the exclusive rights those studios had purchased. A 1998 Supreme Court case called Quality King [9] did suggest that copyright owners couldn’t control re-importation of domestically produced items due to the First Sale doctrine.

But publishers have argued (successfully, so far) that doesn’t apply to goods that were originally manufactured overseas (like the textbooks—or, for that matter, the Hong Kong movie DVDs or Macross toys), because of phrasing in the Copyright Act stating it applied to goods that were “made legally under” its authority. These overseas-imported goods weren’t made under the Copyright Act’s authority, the publishers argue—they were made under the laws and regulations of other countries instead, so First Sale doesn’t apply. The Supreme Court found this argument convincing in the Omega case.

When you think about it further, this is exactly the kind of sticky wicket the Supreme Court exists to address. If SCOTUS finds the textbook importation legal, it means that publishers who sell cheaply overseas are essentially undercutting themselves because there’s nothing stopping anyone from turning rogue distributor and reselling at whatever price the market will bear.

But on the other hand, if SCOTUS sides with the publishers’ argument that First Sale doesn’t apply (as it almost did in the Omega case, and certainly would have if one Justice hadn’t had to recuse herself due to arguing in favor of the case herself in a lower court), it could give publishers a legal loophole to shut down used sales of their works (which they would greatly love to do [10])—just have them printed overseas, and they’re no longer manufactured under the Copyright Act. Not only would this make used sales more complicated (how can you know whether a given book is legal to sell when some of them could be illegal based on where they’re made?), it would also send jobs overseas, which can’t be what the court wants to do.

* * *

That second Ars Technica article [3] covers the first day of oral arguments in some detail. And while I wrote the majority of this post before seeing it, it doesn’t seem to change much of the implications here. It seems the Justices were concerned about how this precedent could affect museums, libraries, and even used car dealerships (can a foreign-made Toyota car be legally resold, given that its onboard computers contain copyrighted software?), though rather less sympathetic to the Thai student in the case. None of the options seemed particularly appealing.

Whichever side wins, the losers will probably start lobbying Congress to clarify matters in law—amending the Copyright Act to apply to any goods made anywhere, or closing the loophole that lets foreign importation slip by. The used resale market is huge, but so is the new sale market, and publishers tend to see them as competing with each other—and will do everything they can to try to kill the used market off.

ReDigi [11]And this is where the e-book angle comes in, as e-books (and paid-download video games and other digital media) can’t be resold (under current copyright law, anyway, though companies such as ReDigi [12] are in the process of trying to change that). But in this field, e-books actually take something of a back seat to computer games, which have been going into digital distro in a huge way.

Computer game distribution networks such as Steam have been converting pirates into consumers [13] with crazy sales and reasonable prices, annoying UK video game retail chains [14] (and, for that matter, American chain Gamestop, which actually went so far as removing a coupon for a free Steam download [15] from physical copies of one new computer game they sold!) with their widespread integration into many hit computer games, and making one Forbes commentator wish that something similar were available for movies [16]. It does DRM well enough that a lot of gamers accept it [17], where they quail at more invasive versions [18]. And while you can give new digital video games from Steam as gifts at the click of a mouse, you can’t resell them used—which a lot of game developers don’t exactly mind [19]. Nearly half of all computer games sold in 2009 were digital downloads [20]. The proportion has probably increased since then.

If SCOTUS sides with the right to resell used physical goods, I expect this could give a pretty big boost to the digital side of things, as so far, digital goods are by and large resale-proof. Might it lead to publishers throwing that many more resources into increasing e-book sales, including running their own e-book stores to compete with Amazon and other big e-book sellers? It should be interesting to find out.

* * *

Also worth reading: How Supap Kirtsaeng’s Textbooks Idea Led to Supreme Court [21]
(Bloomberg Businessweek)

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9 Comments (Open | Close)

9 Comments To "Supreme Court First Sale Doctrine case could give boost to resale-proof digital media sales"

#1 Comment By Liviu On October 30, 2012 @ 1:23 pm

This case is very interesting as it cuts to the heart of globalization; i think there is almost no chance the Supreme Court will rule in favor of Wiley outright, on the other hand a straight ruling against them needs to be followed by some form of prohibiting large scale re imports as the lack of such will simply mean that the products will cease to be made and sold for the poorer countries.

Good for us in the US as we keep our resale rights, but a disaster for the poor countries where most people on Earth live as of today so the morality of this is tricky.

The bottom line is that while it may seem to us a rip off to be charged 15$ when someone in a poor country is charged 1$, the reality is that without those 15$ the product in cause is not made and that applies to everything from medicine to books to software.

The other tricky issue is that this case is about textbooks which are indeed a ripoff and should be produced at cost as part of the job description by tenured academics who get high salaries and perks while the great teaching load is done by grad students and adjunct professors paid by course with no benefits but that is another issue

#2 Comment By Marilynn Byerly On October 30, 2012 @ 4:10 pm

Since the First Sale Doctrine specifically deals with physical goods, not digital goods, these law cases won’t change the current re-sale status of digital goods like ebooks. The copyright office specifically says that a used digital item can’t be resold since it is not a physical item like a paper book so it is not covered by the First Sale Doctrine.

#3 Comment By Frank Lowney On October 30, 2012 @ 5:54 pm

I would guess that the justices will keep this focused on physical goods. It will be complicated enough without getting into digital goods.

However, the question of whether the doctrine of first sale or some modern equivalent of it applies to digital goods will eventually have to be addressed. That is not a moot question as some here have suggested.

#4 Comment By Marilynn Byerly On October 30, 2012 @ 8:44 pm

From a legal perspective, the question is moot.

The First Sale Doctrine Defined:

“First Sale Doctrine refers to the right of a buyer of a material object in which a copyrighted work is embodied to resell or transfer the object itself. Ownership of copyright is distinct from ownership of the material object. Section 109 of the Copyright Act permits the owner of a particular copy or phonorecord lawfully made under the Copyright Law to sell or otherwise dispose of possession of that copy or phonorecord without the authority of the copyright owner.

Commonly referred to as the ‘first sale doctrine,’ this provision permits such activities as the sale of used books. The first sale doctrine is subject to limitations that permit a copyright owner to prevent the unauthorized commercial rental of computer programs and sound recordings.” US Government Publication 04-8copyright.
[24]

If you are interested, go here for links to various legal sources which state that digital media is not a material object. [25]

The courts really can’t change this, only Congress can by redefining copyright, and that will never happen.

#5 Comment By Binko Barnes On October 31, 2012 @ 4:00 am

Marilyn, you haunt these topics on copyright giving out false information.

There is nothing in current copyright law that states that digital goods cannot be resold. The only thing that legally prevents people from reselling digital goods is that digital goods are typically encumbered with DRM which is, in fact, illegal to remove.

And please stop spamming links to your own blog. If you have an argument to make and wish to link to a source that actually supports your argument please provide a direct link. Don’t link to your personal blog which then links to a great mass of other sites and documents.

#6 Comment By Marilynn Byerly On October 31, 2012 @ 12:22 pm

Binko, someone is offering false information and it ain’t me.

I have links to articles below from the Columbia School of Law, Harvard School of Law, and the US Government which all say that the first sale doctrine doesn’t apply to digital material. Who are your experts?

Amazon Kindle and Sony Reader Locked Up: Why Your Books Are No Longer Yours, Columbia Science and Technology Law Review.

[26]

Explores the various issues of sale versus license, first sale doctrine, etc.

iTunes White Paper

[27]

The last sections explain various governments’ stances on first sale doctrine issues.

US Government Publication 04-8copyright.

[24]

#7 Comment By Binko Barnes On October 31, 2012 @ 1:48 pm

Please read the following quote from the first link you provided:

“Whether a transaction is a license or a sale is a factual question determined by courts—even if a publisher calls it a license, if the transaction actually looks more like a sale, users will retain their right to resell the copy. However, as more commercial transactions involve the transfer of digital content—particularly commercial software—courts have struggled to consistently make the distinction between license and sale. Software is increasingly transferred with highly restrictive licensing terms, but federal case law has not clearly determined whether these types of transfers are licenses or true sales”

If a consumer clicks on a prominent “BUY NOW” button on Amazon’s website while the legalize that states his purchase is really a license is hidden away somewhere he would certainly have a case that he purchased his ebook and did not license it.

As many other people have pointed out, the issues surrounding licensing and sales and resale of digital goods have not yet been fully worked out in Federal Court.

The second link you provided is a 100 page document on the state of copyright and contract law across the world while the third is a basic summary of US copyright law. Nowhere that I could see in either does it state that digital goods cannot be resold.

You are repeating false information and providing a bunch of links in an attempt to appear to be well researched when, in fact, the links you provide do not support your claims at all.

#8 Comment By Marilynn Byerly On October 31, 2012 @ 5:32 pm

Binko, copyright owners and publishers have no control of whether Amazon uses a “buy” button on their digital works, nor do they have control of where Amazon places the terms of lease on their site so that cannot be used as an excuse to say that you have the right to resell an ebook.

When you “buy” an ebook, you are agreeing to the terms of lease which is in the small print or on another page of the sale website. There is no question whether it is a lease or sale because these terms clearly state that you are buying a license.

Many ebooks now have statements that they cannot be resold on their copyright page and that they are licensed, not sold.

The copyright office’s document I listed says this, “First Sale Doctrine refers to the right of a buyer of a material object in which a copyrighted work is embodied to resell or transfer the object itself. “

A digital copy of an ebook is not a “material object” so you cannot resell it. A “material object” is a book or CD which is legal to resell. Certainly, that is clear enough.

I’ve dug through my research on copyright and have some clearer examples of the issue of “first sale doctrine” and ebooks.

“Further, the privileges created by the first sale principle do not “extend to any person who has acquired possession of the copy or phonorecord from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it.” See 17 U.S.C. § 109(d). Most computer software is distributed through the use of licensing agreements. Under this distribution system, the copyright holder remains the “owner” of all distributed copies. For this reason, alleged infringers should not be able to establish that any copies of these works have been the subject of a first sale.”

[28]

“But “first sale” is under fire in the digital world.  Created in an era of physical copies, the doctrine historically applied only to tangible copies of copyrighted material.  In the context of a downloaded book or music file, the Copyright Office suggests that first sale rights could be limited to the medium used to make the copy.  In other words, to resell your digital downloads, you must also sell your hard drive, ebook reader, or iPod..”

[29]

#9 Comment By ofer On November 8, 2012 @ 3:26 am

The case was argued last week with justices challenging both sides.

[30]

“First sale” seems obvious right to most of us, but the law as written has far reaching implications way beyond textbooks.

-Ofer
[31]


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URL to article: http://www.teleread.com/copy-right/supreme-court-first-sale-doctrine-case-could-give-boost-to-resale-proof-digital-media-sales/

URLs in this post:

[1] Image: http://www.teleread.com/copy-right/supreme-court-first-sale-doctrine-case-could-give-boost-to-resale-proof-digital-media-sales/attachment/supreme-court_-1-640x428-3/

[2] a couple: http://arstechnica.com/tech-policy/2012/10/a-supreme-court-clash-could-change-what-ownership-means/

[3] great, in-depth pieces: http://arstechnica.com/tech-policy/2012/10/supreme-court-seeks-a-way-around-perpetual-copyright-on-foreign-goods/

[4] its recent lawsuits against unauthorized BitTorrent distributors of its books: http://www.teleread.com/copy-right/john-wiley-sons-wins-default-judgment-in-peer-to-peer-lawsuit/

[5] Image: http://www.teleread.com/copy-right/supreme-court-first-sale-doctrine-case-could-give-boost-to-resale-proof-digital-media-sales/attachment/lazy/

[6] DDD House: http://www.dddhouse.com/v3/index.php

[7] Image: http://www.teleread.com/copy-right/supreme-court-first-sale-doctrine-case-could-give-boost-to-resale-proof-digital-media-sales/attachment/robotech2-3/

[8] started going after toy importers with legal threats: http://www.animenewsnetwork.com/news/2002-04-16/harmony-gold-bars-macross-imports

[9] Quality King: http://en.wikipedia.org/wiki/Quality_King_v._L%27anza

[10] they would greatly love to do: http://www.teleread.com/library/should-second-hand-book-stores-pay-royalties/

[11] Image: http://www.teleread.com/copy-right/supreme-court-first-sale-doctrine-case-could-give-boost-to-resale-proof-digital-media-sales/attachment/redigi_dp/

[12] companies such as ReDigi: http://www.teleread.com/copy-right/redigi-lawsuit-raises-questions-of-fair-use-and-first-sale-in-digital-age/

[13] converting pirates into consumers: http://www.teleread.com/drm/valves-steam-system-converts-video-game-pirates-into-consumers/

[14] annoying UK video game retail chains: http://www.teleread.com/ebooks/amazon-redux-uk-retailers-steamed-at-valves-video-game-network/

[15] removing a coupon for a free Steam download: http://www.teleread.com/ebooks/gamestop-apologizes-for-removing-digital-download-coupon-from-retail-game/

[16] wish that something similar were available for movies: http://www.teleread.com/ebooks/forbes-op-ed-give-us-steam-for-movies/

[17] a lot of gamers accept it: http://www.teleread.com/drm/valves-steam-is-game-drm-done-rightis-there-an-equivalent-for-e-book-drm/

[18] they quail at more invasive versions: http://www.teleread.com/drm/ubisofts-quickly-cracked-computer-game-drm-proves-once-again-that-drm-only-hinders-honest-consumers/

[19] a lot of game developers don’t exactly mind: http://www.teleread.com/chris-meadows/used-games-killing-game-industry-game-developer-claims-what-about-used-books/

[20] were digital downloads: http://www.teleread.com/ebooks/nearly-half-of-all-computer-games-were-sold-as-downloads-in-2009/

[21] How Supap Kirtsaeng’s Textbooks Idea Led to Supreme Court: http://www.businessweek.com/news/2012-10-26/how-supap-kirtsaeng-s-textbooks-idea-led-to-supreme-court

[22] TeleRead: http://twitter.com/teleread

[23] Facebook: http://www.facebook.com/TeleRead

[24] : http://www.cendi.gov/publications/04-8copyright.html

[25] : http://mbyerly.blogspot.com/2009/04/first-sale-doctrine-and-ebooks.html

[26] : http://www.stlr.org/2008/03/amazon-kindle-and-sony-reader-locked-up-why-your-books-are-no-longer-yours/

[27] : http://cyber.law.harvard.edu/media/uploads/81/iTunesWhitePaper0604.pdf

[28] : http://www.justice.gov/usao/eousa/foia_reading_room/usam/title9/crm01854.htm

[29] : http://tech.fortune.cnn.com/2010/12/23/what-do-you-really-own-when-you-buy-an-e-book/?section=magazines_fortune

[30] : http://www.scotusblog.com/?p=154545

[31] : http://thecheaptextbook.com

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